In Bulletin July 2004

Bulletin – July 2004
How Australians Withdraw Cash

Cash continues to be an important means of payment in Australia, despite an increasing
array of payment instruments, including credit cards, debit cards and electronic
transfers. However, while cash has retained its central role, what has changed
over recent years is the way that people obtain their
cash.[1]
This article discusses this change and provides some details on the importance of
the various channels through which cash is currently obtained. Changes to Bulletin
Table C.2, commencing in this issue, provide detail on cash withdrawals through EFTPOS.

Use of Cash

There have been many predictions that cash would decline in importance as a payment
instrument in the face of technological innovations. That this has not occurred
is suggested by the fact that the ratio of the value of currency outstanding
to GDP has increased over recent years (Graph 1). This ratio currently
stands at around
4 per cent, up from an average of around 3½ per cent over previous
decades.

Graph 1

There are no aggregate data on the number, or value, of payments made by cash, as
there are for non-cash payment methods, such as credit cards and EFTPOS. However,
survey data provide some guide as to the use of cash. In particular, in July
2001, a survey conducted by the Australian Retailers Association found that
cash payments accounted for around 40 per cent of the value of all payments
made at the surveyed
retailers.[2]
There were, however, significant differences across types of stores. In food and
convenience stores, for example, cash sales accounted for 56 per cent of sales,
perhaps reflecting the large number of small transactions. In contrast, cash
sales in department stores and women's clothing stores were a relatively
small share of total sales (13 per cent and 9 per cent respectively), with
credit and charge card transactions being the dominant form of payment.

Access to Cash

Absent a steady cash income, individuals need to withdraw cash from their bank or
financial institution. Traditionally, this was only possible over the counter
at a branch or by cashing a cheque. Today, however, many more options are available.
In addition to the traditional methods, consumers can make a withdrawal at
an Australia Post office (using giroPost); they can use an ATM, either their
own institution's or one belonging to another institution; or they can
withdraw cash at a merchant using an EFTPOS
terminal.[3]

While data on cash withdrawals over the counter are not available, data on cash withdrawals
from ATMs and through EFTPOS are collected by the Reserve Bank (Table 1).
The Reserve Bank also collects data on cash withdrawn by way of credit card
cash advances (generally via an ATM).

Table 1: Cash Withdrawals

Year to March 2004

Number
Million

Value
$ million

Average value
$

ATMs

728

122,732

169

Own institution

384

74,820

195

‘Foreign’

344

47,911

139

EFTPOS

167

9,283

56

Cash-out only

15

1,063

71

Cash-out combined
with purchase

152

8,220

54

Credit & charge card
cash advances

36

10,520

292

Total

931

142,534

153

Sources: RBA

The data show that a withdrawal from a deposit account, via an ATM, is the most important
source of cash for consumers. Over the year to March 2004, around 40 per cent
of these withdrawals occurred at an ATM owned by an institution other than
the customer's financial institution (a so-called ‘foreign ATM’)
and would almost always attract a fee. The average size of an ATM withdrawal
was $169 with the average amount withdrawn from a foreign ATM considerably
smaller than the average withdrawal from an ATM owned by the customer's
financial institution. One explanation for this is a tendency for people to
use ‘foreign ATMs’ for smaller, convenience cash withdrawals.

While the EFTPOS system is also used to withdraw cash, there were four times as many
cash withdrawals from ATMs as from EFTPOS terminals in the year to March 2004.
Moreover, the average cash withdrawal from an ATM was much larger than the
average withdrawal using EFTPOS ($169 versus $56). Given the greater number
and larger size of withdrawals using ATMs, the total value of cash withdrawn
from ATMs was 13 times that withdrawn using EFTPOS. The value of cash advances
on credit cards was also greater than the value of cash-out transactions over
the EFTPOS network. This is despite there being around five times as many cash-out
transactions over the EFTPOS network as there are cash advances on credit and
charge cards.

One interpretation of these data is that consumers use EFTPOS mainly to make purchases
of goods and services but that they sometimes obtain relatively small amounts
of ‘supplementary’ cash when paying for these purchases
(Graph 2). Around 75 per cent of the value of total EFTPOS transactions
is accounted for by purchases without a cash withdrawal. A further 23 per cent
is accounted for by purchases with a cash withdrawal, with the average amount
of cash withdrawn being around $54. Only 1.7 per cent of the value of all EFTPOS
transactions represents purely cash-out transactions, with the average amount
of cash withdrawn being $71.

Graph 2

There are a number of possible reasons why many cardholders use ATMs as their primary
source of cash and EFTPOS as a secondary source. One is that customers using
EFTPOS to withdraw cash have typically already made a purchase and hence require
less cash. Another is that merchants often place a limit on the size of cash
withdrawals and/or are unable, on occasion, to meet requests for large withdrawals.
A third is that withdrawing cash through an ATM can afford more privacy than
withdrawing at a retail store.

Given that the Reserve Bank's data collection is relatively new, commencing in
2002, it is difficult to provide historical growth rates for the various means
of withdrawing cash. However, survey data are again useful here. A Roy Morgan
Research survey in 1997/98 showed that approximately the same number of people
used an ATM as visited a bank branch in the previous four weeks (Graph 3),
and many of those branch visits would not have involved withdrawing
cash.[4]
Since then, the survey data indicate that the proportion of the population
visiting a bank branch has declined, while use of ATMs has increased. In 2002/03,
almost ¾ of respondents indicated that they had used an ATM at least
once over the previous four weeks, while only half of respondents reported
visiting a bank branch. The survey does not separately identify those who used
EFTPOS to withdraw cash.

Graph 3

One reason for the growth of withdrawals through electronic channels is the wider
availability of ATMs and EFTPOS terminals and a reduction in the number of
bank branches (Graph 4). The number of ATMs in Australia has increased
from around 5,000 in the early 1990s to around 20,000 in 2003. The increase
in the number of EFTPOS terminals has been even more marked.

Graph 4

A related reason for this growth is the difference in costs faced by consumers in
withdrawing cash through different channels. Table 2 illustrates the fee structure
for the main transaction accounts at the four major banks. Branch withdrawals
(which are more costly for banks to provide) are on average four to five times
more expensive for consumers than those conducted at an ATM owned by the customer's
bank, or at an EFTPOS
terminal.[5]

Table 2: Main Transaction Accounts at Major Banks

As at 28 June 2004

Range

Average

Excess transaction fees ($)(a)

ATM – own

0.50 – 0.65

0.60

ATM – foreign

1.50

1.50

Branch

2.00 – 3.00

2.50

EFTPOS

0.30 – 0.60

0.45

(a) All accounts that charge a monthly account-servicing fee allow at least
some fee-free transactions. Some accounts now offer unlimited free transactions
for certain transaction types, in which case excess transaction fees will
not apply.

Sources: Bank websites

Conclusion

Cash remains an important payment instrument despite technological innovations that
have led to new forms of payment. Nonetheless, technological innovations have
changed the way most consumers access their money. In the past, over-the-counter
withdrawals at bank branches or cheque cashing were the only options available.
Today, the widespread deployment of ATMs and EFTPOS terminals provides more
options to consumers wishing to access their cash. By far the most popular
choice is the ATM with over 85 per cent of the cash obtained by electronic
means sourced in this way. While EFTPOS clearly provides a convenient alternative
for consumers, for many consumers it seems mainly to be a way of obtaining
smaller amounts of supplementary cash rather than being the primary cash withdrawal
method.

Footnotes

The oldest known coins date to Lydia in the 7th century BC. The oldest widespread
use of paper money comes from the Tang Dynasty in China (618–907 AD).
[1]

Cash-out with EFTPOS is not available at all merchants. Of those that do offer it,
some offer it only in conjunction with a purchase. Sometimes, minimum transaction
sizes are specified before cash-out is made available. Cheque-cashing facilities
have virtually disappeared.
[3]

While the survey data do not specify the type of transaction conducted when visiting
a branch, it is clear that over-the-counter transactions (cash or otherwise)
have declined in importance while electronic transactions have grown.
[4]

Fees for credit and charge card cash advances from ATMs are more complex, but are
usually the higher of a fixed dollar amount and a percentage of the cash
advance. This makes cash advances a relatively expensive method of obtaining
cash. The fees can amount to several dollars per transaction given the relatively
large average value of cash advances.
[5]